Because names are scarce and squatting produces inefficiency. Someone who wants to make productive use of the name has to pay a middle man in order to do it, which reduces their resources available to do the useful thing and unjustly enriches the middle man who has provided nothing of value to anyone compared to the situation where nobody registers the name until they have a use for it. (Or, if multiple legitimate users want the same name at the outset, compared to having an auction where money goes somewhere meritorious like paying the cost of maintaining the naming system instead of to the jerk with the fastest computer.)
Although one of the best ways to discourage squatting is to reduce scarcity. Have hundreds of TLDs (.cars, .bank, .farm, .repair, .plumber, .housing, etc.), or if you're not ICANN and don't want to pollute the global namespace with multiple TLDs then second level domains (.cars.bit, bank.bit, etc.)
Then a squatter has to register hundreds of times as many names and each name has hundreds of times fewer prospective buyers. Combine this with some nominal cost ($10/year) to holding a name, irrelevant to normal users but prohibitive to someone who wants to hold trillions of names hostage. And which you want to have regardless to be able to reclaim names that have been abandoned.
(please guys, don't punish/downvote someone for asking a question)
Domain Squatting is border line extortion. It's not your usual business because there is no competition possible : there is only one person that can own the domain. If a squatter registers the name of a well known company on a TLD they weren't present in, then mail them saying they put some porn website on it and put money in SEO, there is little the company can do except paying absurd amount of money to get control over the domain (mind you, Handshake would not prevent that, from what I see).
In a less dark way, you may also have to change your startup name because someone is squatting a domain and you don't have any money yet to buy it, which is a real nuisance when you think that person is doing absolutely nothing with that domain.
People started buying up tons of obvious namecoin names while they were cheap, as speculators.